If the hedge ratio is 0.7, the number of call options necessary to offset a long position in a stock is 7.0.

Question

Quizplus · Accepted Answer

The hedge ratio (also known as the delta) indicates the number of options needed to hedge a position in the underlying asset. If the hedge ratio is 0.7, it means you need 1/0.7 options to hedge each share of the stock, not 7 options for the entire position. The calculation for the number of options would depend on the total number of shares you're trying to hedge.

If the Hedge Ratio Is 0